Collinson FX: October 6 - Australians expected to bring forward tax cuts
by Collinson FX 6 Oct 2020 21:13 AEDT
6 October 2020
2020 NZ Keelboat National Championship sailed in the MRX - October 2020 © Richard Gladwell / Sail-World.com
Collinson FX: October 6 - Australians expected to bring forward tax cuts
Equities opened the week strongly, after the shock hospitalisation of President Trump, last week and his subsequent recovery.
It appears the President is making a strong recovery and markets were also encouraged by the prospect of a new stimulus/bailout package from Congress. It appears progress is being made on the fiscal stimulus, as the spirit of bi-partisanship soaks through Washington, following the Presidents shock diagnosis. The strong rebound in confidence allowed the Dollar to retreat, with the EUR jumping to 1.1770, while the GBP traded 1.2970.
European markets were also enjoying the good news, supported by some stronger than expected Services and Composite PMI numbers. This was followed by some strong PMI and ISM data out from the US, allowing the Dollar to drift lower, as sentiment improved. The NZD traded above 0.6600, ahead of the release key Business Confidence data, while the AUD held around 0.7170.
The Australian markets will be focused on the Federal Budget which will reveal unprecedented debt, deficit and expenditure. It is expected to bring forward tax cuts and other stimulus measures to shake the economy out of the recession. The fiscal and monetary damage done by the Government has been immense and possibly an over-reaction, but history will tell that story.
The virus continues to surge in Europe and the US, with closures now more targeted, to allow the economy to function. The treatments for the virus is improving, as exemplified by President Trump. Markets will respond well to further fiscal stimulus.
Collinson FX: October 5 - Trump demise triggers flash-crash
US and European markets experienced a ‘flash-crash’, after it was announced that President Trump tested positive for the coronavirus. A panic selling hit US futures and spiked the safe-haven US Dollar. As markets digested the news, they also recovered, aided by news that the Pelosi led House was considering further actions. This was led by possible bailouts for the Airline industry, following 32,000 layoffs, within the industry. By the close of trade stock markets were lower, but only marginally, while the currencies all but returned to the status quo.
October is often an eventful month and this is the month before the November 3rd Presidential Election, so expect volatility and fireworks. Non Farm Payroll was all but overlooked during the melee, but missed expectations, although the headline Unemployment rate fell to 7.9%. This is the final report before the election. The University of Michigan Economic Sentiment report saw a rise, jumping to 80.4, reflecting the surging US economy.
The volatility on markets forced the trade exposed currencies lower, but the recovery by close of trade allowed the AUD to trade above 0.7150, while the NZD settled back to 0.6640. Markets will continue to focus on the Presidential election in the US and the economic consequences of possible scenarios. The virus will continue to emote.
Collinson FX: October 4 - Markets adjust after rally tires
The rally seen on equity markets appears to have run out of steam, as hopes of Congressional action for a further bailout package/stimulus, faded. The losses suffered in equities in September were almost eliminated by a big rebound in markets and sentiment towards the end of the month, which has seen the safe haven US Dollar lose it’s shine. The EUR has progressed to 1.1740, despite a rise in the EU Unemployment rate, while the GBP traded 1.2880.
The flagging reserve has allowed the trade exposed commodity currencies to regain some lost ground. The AUD traded 0.7180, despite softer manufacturing data, while the NZD pushed back to 0.6640. The all important Japanese Tankan report, was an improvement on the losses suffered in the previous six quarters, although remains deeply in the red. The Tankan had corpora and manufacturing sentiment at an 11 year low, so this improvement has been welcomed.
Hopes surrounding a stimulus in the US are disappearing quickly , while attention will now turn to the important Non Farm Payrolls, released tonight. US employment has been strong and the economy is improving, in the lead up to the US Presidential elections, which will be a defining moment for markets.
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